Working capital is a way for accountants, investors and managers to view the short-term health of a company. Working capital equals current assets minus current liabilities. Current accounts are accounts that the company collects or are due in the next year. Making a capital expenditure will have several effects on the company's working capital, depending on the transaction. However, in certain cases, there may be no impact; it is important to understand why.

Paying With Cash

If you have an capital expenditure that the company pays using cash, then there will be no change in working capital if the asset is a current asset. This is because you are using an asset, cash, to purchase another asset. For example, a company pays $300 in cash on a capital asset. The company would reduce cash by $300, which is a current asset, and replace the cash with a $300 asset. There is no change in working capital if the asset is a current asset. However, if the asset is not a current asset, it is a long-term asset. Long-term assets do not change the working capital, so there would be a $300 loss in working capital.

Paying With Debt

If the company uses debt to pay for the capital asset, then there will be a decline in working capital. The current portion of the debt, the amount due in the next year, will decrease working capital. If the asset the company purchases is a current asset, then there will be an increase in working capital. For example, a company purchases a $300 asset by taking out a loan. On the loan, $100 is due in the next year. If the asset is a long-term asset, then there is a $100 decrease to working capital. If the asset is a current asset, there will be a $200 increase in working capital.

Mixture of Debt and Cash

Companies can pay for assets with a mixture of their own cash and a loan. This could have various effects on the working capital. In order to figure out how working capital changes, the accountant must break the transaction down to see what affects current accounts. For example, a company purchases a $300 asset with $100 in cash and $200 in loans. The current portion of the loans is $50. Current assets decrease by $100 with the expenditure of cash. Current liabilities increase $50 due to the current portion of the loan. The purchased asset may or may not affect current assets depending on the asset's classification.